Board characteristics and corporate cash holding: evidence from the UK, France and Germany

Purpose: Prior studies suggest that corporate cash holding will reflect firms' corporate governance (CG) environment. Consistent with this prediction, this study aims to examine the impact of board characteristics on firms' cash holding in the UK, France and Germany.

Design/methodology/approach: Using 2,805 firm-year observations between 2009 and 2019, the authors examine the relationship between board characteristics and corporate cash holding. The authors used two measures of cash holdings as our dependent variables. As independent variables, the authors used CG characteristics relevant to effective board monitoring such as board meetings, outside directors, board size and board gender diversity.

Findings: The authors find that board characteristics influence firms' cash holdings of firms in the UK, France and Germany. However, this study documents evidence of varying impacts of board monitoring on the cash holding of the UK when compared to German and French firms, the countries that are classifiable as bank-based economies. The result of this study is robust to alternative cash-holding measures and endogeneity.

Practical implications: This study provides evidence supporting the board's impact in mitigating agency conflict in shareholder- and stakeholder-oriented CG environments.

Originality/value: This study contributes to previous works on firms’ financial orientation by showing that the impact of board characteristics on corporate cash holdings varies between bank- and market-based economies.